Country Report: Czech Republic

"Summer Day," produced by a group of psychiatric patients from the Day Care Centre in Prague. Reproduced from the 2006 Lundbeck calendar "Arena," published by Galen.

The '90s was an enthusiastic time. With the fall of communism in 1989 and the emergence of the free economy, the international pharmaceutical industry arrived in the Czech Republic to find a highly receptive market. Modern therapies found alacritous patients. Uninitiated Czech doctors welcomed pharmaceutical representatives into their offices for the first time. A nascent and inexperienced regulator kept loose control over the industry's operations.

Beáta Hauser, General Manager, Ipsen CR

The market was growing—quickly. Many players enjoyed a boom time: "Every company was growing; the market itself was growing very substantially. Simply having a representative office was almost enough, as the healthcare industry was eager for new products, and people believed that everything that came from the West was somehow superior," says Beáta Hauser, general manager of Ipsen CR.

Tomáš Matêjovský, Partner, CMS Cameron McKenna CR

As the Czech Republic matured as a state, however, things began to change. One outcome of the market's evolution wavs the propensity toward ethical practice—something that was not a given in the past. This sharpened the competitive advantage of players like Janssen and Amgen, who base their market strategies in large part on their refusal to cut corners in compliance.

Hometown advantage

But the system also became much more costly, as the population aged and the demand for modern therapy increased. In the eyes of many industry stakeholders, the system began to suffer, too, from over-complexity. CMS Cameron McKenna partner Tomaáš Matêjovský, head of the law firm's life sciences practice in the Czech Republic, believes that today, it is due to "the formality—the heavy weight—of the system," that it "has become very expensive—and does not work very well." Matêjovský sighs. "We are still trying to invent the wheel here."

Cost concerns have lead invariably to heavy cost-containment. Timm Pfannenschmidt, country manager for Boehringer Ingelheim CR, remembers when the cost pressure came to a head: "In 2008/2009, changes came in terms of price cuts, new legislation, and reimbursement cuts—and the situation was transformed. The industry was not prepared for these changes. People working in the market for 10 or 20 years, used to constant growth, struggled to handle the business under different rules." Since 2009, the market, according to local research firm CEEOR, has grown by an average of only 1.2% year-over-year.

Change has come ever more rapidly thanks to the appointment of Health Minister Leoš Heger, a veteran hospital administrator with a distaste for politics, a dedication to reform, and the honor, with only two years under his belt, of being the new republic's longest-serving minister of health. Under his tenure, the government introduced blunt cost-containment measures such as 7% flat price cuts in 2010 and 2011, and the possibility of electronic tenders is on the horizon.

Perhaps inevitably, the once-booming market has started to look like a microcosm of the financially austere EU. Henning Sommermeyer, a two-decade managerial veteran of the European pharmaceutical industry, and recent founder of the Czech-based consultancy Pronaos, has watched the times change, and innovators have perhaps been hit hardest.

Timm Pfannenschmidt, Managing Director, Boehringer Ingelheim CR

"In the past, the industry had a very simplistic approach," Sommermeyer says. "Today, governments are starting to ask, 'if I have to pay for this, what do I really get in return?' Me-too's will not be given a premium of ten times the generic price. Why should they? It was foolish to believe that such trends would continue."

As the Czech Republic increasingly sheds its 'emerging market' standing, the industry must take the good with the bad, and adapt its strategies to continue to derive value from the second largest (at approximately USD 3.2 billion) pharmaceutical market in Central and Eastern Europe (CEE). Sommermeyer muses, "We lived in paradise, but paradise has been closed recently."